ACCT Chapter 1
Memorize traditional and contribution format of income statements
"Using Different Cost Classifications for Different Purposes" Page 41 of text
Sunk cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future
Raw Materials > WIP > Finished Goods
Balance Sheet
COGS
Beg. Inventory + Purchases - Ending Inventory
Finished goods goes to where on the income statement once it is sold?
Cost of Goods sold
Finished goods > Cost of Goods Sold
Income Statement
Manufacturers' product costs flow through
Raw materials, work in process, and finished goods
Total fixed cost
Remain constant
Variable per unit cost
Remain constant
Fixed per unit cost
Vary
Total variable costs
Vary
Mixed cost
Vary in both per unit and total
COGM
WIP > Finished Goods Credit side for WIP Debit side for Finished Goods
Y = a + bX
Y = Total Mixed Cost a = Total Fixed Cost b = Variable Cost Per Unit of Activity X = Level of Activity
Work in Process
direct labor and manufacturing overhead
Conversion costs
direct labor and overhead costs
Variable manufacturing cost
direct materials + direct labor + variable manufacturing overhead
Prime costs are
direct materials and direct labor
Product costs
direct materials, direct labor, manufacturing overhead
Administrative costs include
executive compensation and public relations costs
True or false: all of a company's depreciation, property taxes and insurance premiums are considered as manufacturing overhead
false
Net income
gross margin - selling and administrative expenses
Manufacturing overhead costs include
indirect materials and indirect labor (factory supervisors' salaries and factory depreciation)
Thread in jeans are considered as
indirect materials and manufacturing overhead
Relevant Range
level of activity within variable and fixed cost assumptions are valid
Direct materials and direct labor are both
manufacturing costs
Indirect materials and indirect labor are classified as
manufacturing overhead
Period costs
non manufacturing costs; selling and administrative
Contribution margin
sales revenues - all variable expenses
Nonmanufacturing costs
selling costs and administrative costs
Differential cost is
taking the difference between net income and costs (subtract net incomes to find the difference, subtracts costs to find differences, subtract net income difference from cost difference to find differential net income)
Opportunity cost
the potential benefit that is given up when one alternative is selected over another
Period costs are expensed on the income statement in the period in which
they are incurred using the usual rules of accrual accounting
